FTSE 100 makes progress but miners fall on China fears, THG set for a corporate break up and Wickes beats expectations

“The FTSE 100 started on the front foot on Thursday as investors faced competing catalysts from East and West,” says AJ Bell Investment Director Russ Mould.

“Some decent corporate news and an upbeat report from the US manufacturing sector outweighed continuing worries about China which dragged down mining stocks and other firms with links to the Chinese economy including luxury brand Burberry.

“Construction equipment hire business Ashtead topped the FTSE 100 leaderboard as it lifted full year expectations – the group is widely seen as a beneficiary of the anticipated infrastructure spending splurge in the US.”

THG

“A corporate divorce looks to be on the cards at e-commerce firm THG but rather than expensive or messy, the company will be looking for this break up to generate a windfall in the form of enhanced valuations for its individual businesses.

“Significantly it is not just unveiling plans for a separate listing of its beauty division next year but also trailing a divvying up of its nutrition arm and Ingenuity technology and logistics platform too.

“THG is banking on these businesses being ascribed more value by the market as separate entities and this is perhaps most pertinent to the Ingenuity arm which has generated a lot of the excitement around the stock since its 2020 listing.

“The platform has been sold as an out of the box solution to third parties looking to launch an e-commerce service in much the same way as Ocado’s own platform is sold to global supermarkets as a means of offering online groceries.

“THG’s agreement in May to sell a 20% stake in this unit to Japan’s Softbank provided something of an endorsement of this potential. This transaction also implied that THG has faced a discounted valuation for its prospective jewel in the crown by having it hidden behind other moving parts.

“Ingenuity remains a jam tomorrow opportunity though. It is generating decent levels of growth but as today’s first half results show it represents less than 10% of group revenue. An investor day next month to highlight the potential of the platform will be closely scrutinised.”

Wickes

“Spun out of Travis Perkins in April, Wickes has struggled in recent months to win support from investors, with the share price not really going anywhere. That might soon change, given how Wickes has just smashed market expectations.

“Travis Perkins had talked about wanting to get rid of Wickes for years and normally when a business is demerged it means a trade or private equity sale had failed, typically because the seller couldn’t get the desired price.

“Wickes has become a standalone entity during a new boom time for DIY. Long periods of lockdown since early 2020 prompted households across the country to reassess their dwellings and make plans to spruce them up.

“DIY product sales have gone through the roof and this trend still looks in play despite lockdowns ending. It’s also not just homeowners spending money on doing up their four walls, it’s also people renting who want to improve how their living space looks.

“Many tradesmen say they’ve never been busier, and the queue of people waiting for work to be done is getting longer so Wickes needn’t worry about demand dwindling any time soon.

“For those households who are sick of waiting for someone to come and do work on their property, they’re trying to do the upgrades themselves.

“This creates two streams of demand for Wickes as it caters for both trade and DIY enthusiasts. The fact it operates at the value end of the market also puts it in a strong position. Yes, product prices “are soaring across multiple lines, but Wickes should still be cheaper relative to competitors.

“What’s interesting is how two thirds of its sales in its latest results were driven by digital channels. Five to 10 years ago, the idea of ordering a broom, bucket and a bag of sand over the internet would have seem unthinkable. Now it is second nature and far more convenient for the purchaser.

“Also working in Wickes’ favour is a digital showroom so people can sit at home and use their computer to work out how they might want their new kitchen to look.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.